On 1 May 2020, the International Centre for Settlement of Investment Disputes (“ICSID“) and the United Nations Commission on International Trade Law (“UNCITRAL“) released the long-awaited Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement (the “Code”). The Code was prepared jointly by the Secretariats of ICSID and UNCITRAL, and seeks to address a range of ethical issues in investor-State dispute settlement (“ISDS”).

Background

The Code was prepared in the context of wider ISDS reform initiatives, namely ICSID’s proposals to amend its rules of procedure, and the work of UNCITRAL’s Working Group III (ISDS Reform) (“WGIII”) in relation to potential ISDS reform solutions. Both initiatives identified the question of a code of conduct for adjudicators, and the Code reflects input from both Secretariats. In particular, the Code seeks to reflect the deliberations of WGIII to date, including the proposals for reform submitted by several governments (many of which include comments on a code of conduct).

The Code is based on a comparative review of the standards of conduct set out in investment treaties, arbitration rules applicable to ISDS, and codes of conduct of international courts.

Key provisions

The Code contains 12 articles, each accompanied by commentary, and with some including multiple proposals for wording (identified by square brackets).

Scope

Article 2 provides that the Code shall apply to all persons who adjudicate ISDS proceedings, as soon as they are contacted in relation to a possible appointment. Article 2 further notes that adjudicators must take steps to ensure that their assistants are aware of, and comply with, relevant provisions of the Code.

“Adjudicators” is defined broadly in Article 1 to mean “arbitrators, members of international ad hoc, annulment or appeal committees, and judges on a permanent mechanism for the settlement of investor-State disputes”. ISDS is similarly defined broadly. A footnote to the definitions clarifies that the obligations set out in the Code are not designed to address the screening and nomination process for a candidate to be part of a standing body or mechanism, but rather, when adjudicators are selected to hear a specific case.

The commentary notes that the Code would not apply to counsel, experts, members of the secretariats, staff of arbitral institutions and other participants in the proceedings, who would require different regulations and who would also likely be bound by other applicable ethical rules.

Core duties and responsibilities

Article 3 prescribes a set of core duties for adjudicators. This includes: independence and impartiality, avoidance of conflicts, impropriety and bias; integrity, fairness and competence; diligence and efficiency; and compliance with confidentiality obligations. These provisions reflect fundamental ethical requirements, commonly found in codes of conduct.

Article 4 further enunciates requirements in relation to independence and impartiality. Article 7 details obligations in relation to integrity, fairness and competence, including a requirement that adjudicators shall not engage in ex parte communications concerning the proceedings. In relation to confidentiality, Article 9 codifies generally accepted rules of confidentiality for adjudicators and provides that they shall not disclose or use any non-public information until such decisions are in the public domain. Further, Article 9 proposes that adjudicators shall not be permitted to discuss rulings in which they participated (a practice which, the commentary notes, is observed by most adjudicators, but is included for the avoidance of doubt).

Disclosure obligations

The draft wording of Article 5 seeks to address potential conflicts of interest and the issue of repeat appointments by requiring extensive disclosure, and includes several possible options in square brackets.

Article 5 requires disclosure of “any interest, relationship or matter that could reasonably be considered to affect their independence or impartiality” and places a duty on adjudicators and candidates to make all reasonable efforts to become aware of such interests, relationships and matters. For adjudicators, the duty is a continuing one throughout the proceedings.

The disclosure requirements are drafted broadly, and include several policy options. The proposals includes disclosure of:

a. “Any professional, business and other significant relationships, within the past [five] years with:

  1. “The parties [and any subsidiaries, parent-companies or agencies related to the parties];
  2. The parties’ counsel;
  3. Any present or past adjudicators or experts in the proceeding;
  4. [Any third party with a direct or indirect financial interest in the outcome of the proceeding].”

b.All ISDS [and other [international] arbitration] cases in which the candidate or adjudicator has been or is currently involved as counsel, arbitrator, annulment committee member, expert, [conciliator and mediator].

c.A list of all publications by the adjudicator or candidate [and their relevant public speeches]”.

Further, adjudicators and candidates should err in favour of disclosure if in doubt. However, adjudicators and candidates are not required to disclose interests, relationships or matters whose bearing on their role in the proceedings would be “trivial”.

Double-hatting

Article 6 provides several options in relation to “double-hatting” (the practice of acting as both counsel and arbitrator).

The commentary notes that there is no comprehensive definition of double-hatting, and it is suggested that this could also include overlaps between counsel work and serving as an expert or as a mediator, and could either concern proceedings under the same treaty or with respect to all ISDS proceedings.

The draft Code proposes two options. Adjudicators should either refrain from acting as both arbitrator and counsel/expert/witness/judge or agent, or disclose if they are simultaneously (or “within X years”) acting in any other capacity on matters that involve the same parties, facts or treaty.

The commentary states that “an outright ban” on double-hatting would be easier to implement, but would create a variety of challenges, including by excluding more candidates than necessary and curtailing parties’ freedom to choose their adjudicator.

Caseload concerns

Article 8 requires candidates to ensure their availability to hear the case, render all decisions in a timely manner, and refuse competing obligations.

To achieve these aims, a proposal included in square brackets suggests requiring adjudicators to refrain from serving in more than a specified number of ISDS proceedings at the same time. However, the commentary notes that introducing a specific number would be controversial, as the number of cases an arbitrator can diligently manage depends on a number of factors, including the complexity of the case, capacity of the individual and whether a case settles or becomes dormant.

Pre-appointment interviews

Article 10 provides for pre-appointment interviews with adjudicator candidates to be limited to discussing availability to accept the appointment, and conflicts of interest issues. Pre-appointment interviews should not touch upon jurisdictional, procedural or substantive matters, or the views the potential adjudicator would take if selected.

Article 10 includes a suggestion in square brackets that, if any pre-appointment interview occurs, it shall be fully disclosed to all parties upon appointment of the candidate.

Adjudicator fees

Article 11 provides that any discussion relating to adjudicator fees shall be concluded immediately upon constitution of the adjudicatory body and, where possible, shall be communicated through the administering entity. This facilitates early discussion of the rate and enables parties to replace adjudicators early if they cannot agree the rate requested. It also aims to avoid any situation where adjudicators accept an appointment and request different fees once the tribunal is formed.

Article 11 further provides that adjudicators shall keep an accurate and documented record of the time devoted to the procedure and their expenses, as well as the time and expenses of their assistant.

Implementation and enforcement

The commentary notes that the tools available for enforcement of the Code will depend largely on how the Code will be implemented. Options noted in the commentary include: incorporating the Code into investment treaties, disputing parties agreeing to the application of the Code, appending the Code to the disclosure declaration that adjudicators must file on acceptance of nomination, incorporating the Code into applicable procedural rules, or making the Code part of a multilateral instrument on ISDS reform.

The draft Code recognises that a primary method of enforcement is through voluntary compliance. Article 12 thus reminds candidates and adjudicators of their duty to comply with the Code, and specifically notes that the disqualification and removal procedures in applicable arbitral rules shall continue to apply. This could allow alleged violations of the Code to be raised in the context of existing challenge and removal procedures.

As discussed in the commentary, additional sanctions were considered at the 38th session of WGIII in January 2020, including sanctions linked to remuneration, disciplinary measures, reputational sanctions and notifications to professional associations. However, implementation difficulties have been identified with each of these suggestions, and none have been incorporated into the draft Code.

Next steps and comment

The ICSID and UNCITRAL Secretariats have welcomed comments on the draft Code and WGIII will go on to consider the proposals. The 39th session of WGIII was due to commence on 30 March 2020, but was postponed in light of the COVID-19 pandemic, so it is currently unclear when the draft Code will next be discussed.

The Code as currently drafted contains a range of potential options which could be adopted, covering the relevant issues previously raised by WGIII in the context of ISDS reform. There may well be differing views from WGIII states in respect of some of the Code’s proposals, including possible caseload limits, expansive disclosure obligations, and limitations on double-hatting. It will be interesting to see which options are ultimately selected by WGIII for inclusion in the finalised Code.

For more information, please contact Christian Leathley, Partner, Amal Bouchenaki, Partner, Caitlin Eaton, Associate, or your usual Herbert Smith Freehills contact.

Christian Leathley
Christian Leathley
Partner
+1 917 542 7812

Amal Bouchenaki
Amal Bouchenaki
Partner
+1 917 542 7830

Caitlin Eaton
Caitlin Eaton
Associate
+44 20 7466 2662